Daily Archives: July 9, 2015

The “F” Factor

Mundabor's Blog

And it came to pass the football match wanted by Francis to end the atrocities in the Middle East took place. It must have worked, because when I woke up this morning the birds were chirping with unusual energy, and, clearly, Love Was In The Air. Or not, as the case may be.

The Match To End All Wars took, then, place, and the stadium was half-empty.

How can this be, when Francis The Humble Black Shod Peacemaker was behind the initiative?

Where were all the non-judgmental Catholics so inspired by the “fresh, new approach” of the Unholy Father? The lovers of peace? The Sons Of The Age Of Mercy?

They were, apparently…. everywhere else.

The brutal truth is that the world does not care a straw for Francis, and never was disinterest more deserved. To them, Francis is light entertainment: a short headline on the morning paper, a momentary…

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Appendix Two: Your Currency And You

What follows is another, ahem, Captain Obvious effort. But as we clearly live in times where obvious facts are either ignored or considered offensive, it is fitting to write a line or three about it. With this also ends my mini-holiday from the antics of Francis. Starting from tomorrow, it is business as usual.

——-

Let me introduce you to two Countries, which we will call A and B.

Country A and Country B compete in the same markets for, say, cars. Country A is efficient, well-ordered, and largely free from corruption. Country B is inefficient, chaotic, corrupted, and populist. Their currencies are exchanged at parity, because, say, Country B has just made a currency reform to adjust the nominal value of its currency.

Soon, the cars of Country B will find it very difficult to compete with the cars of Country A. The inefficiency and corruption at all levels of Country B will take care that it is so. In order to remedy to this, Country B will find it very convenient to devalue its currency against the currency of A; or, in a system of free currency markets, the market itself will, on the whole, care for it and progressively demand that for every Schnaps (the currency of Country A) not more 1 but 1.1, then 1.2, then 1.3, then at some point 1.8 or 2 Ouzos (the currency of Country B) is paid. The devaluation cares that the equilibrium in competitiveness is, on the whole, re-established. More clients of Country A will consider buying the now cheaper – but same, perhaps better value-for-money proposition – car from Country B, whose devalued Ouzos make it cheaper in Schnaps; whilst many clients from Country B will find the car from Country A now too expensive, because its price in Ouzos has increased following devaluation or, which is the same, the Schnaps becoming stronger against it. The same will happen in many other sectors of the economy: more tourists from Country A will decide to visit Country B (“look: only 399 Schnaps including hotel and return flight!”) less will make the opposite journey, etc.

It is commonly said that Country B has “become poorer”. This is true, but only in a sense. Country B has become poorer compared to Country A, but it has safeguarded its jobs. The factory worker of B couldn't care less that his holiday will have to be in his own country, if in exchange he can avoid losing his job. His Ouzos are Worth less Schnaps; but, crucially, he still has a job.

This is how it has always worked. The less efficient economies protected themselves by the effect of their lack of competitiveness by devaluing their currency, or allowing it to adjust automatically to the different paces of two different economies. Unpleasant as it was, it worked on the whole. Not everyone can be best in class.

Unfortunately, more corrupted and populist countries – like B – tended to be… populist and corrupted. The result was careless spending, which resulted in state deficit, which in turn caused big debt, or big inflation – because of all the “money printing” to finance the populist expenses – or, more likely, a mixture of both. This caused higher inflation, higher interest rates, more social conflicts, a growing debt, and more devaluation compared to Country A. The social conflicts then caused strikes, which caused loss of competitiveness, which made the problem worse, and caused more loss of jobs, and more government careless spending to appease the mob, and more inflation, and more deficit, and more debts, now more expensive to service because of the higher interest rate…

“How beautiful would it be” – Country B started to think – “if I could also benefit from the advantages of a strong, low-inflation, low-interest, stable currency! How beneficial this would be to my economy!”

Stop and pause here.

Country B wants a strong currency it has never deserved, because it was never serious enough to get one. But it wanted it anyway, thinking it would be all good, and with no downsides. Thinking, that is, only of the advantages it brings.

Country A listened to Country B and said: “I am very fine with that, dear neighbour. It would be advantageous for me too if you stopped being a chaotic, riotous, populist Country. Your increase in wealth would benefit me greatly! More cars to sell! More tourists to visit my country! Less inflation imported because of your incompetence (that's more complicated: take it from me…). Wunderbar! I am, therefore, all in favour of the two of us having the same currency! However, in order for this to work we will have to have ze same rules, Ja? This means that you, as a Country, will have to become as good as I am, because the low interest rates and low inflation and strong, stable currency do not fall from the sky, but are the result of sensible economic policies!”

” ' Course! – said Country B – “all fine! Everything you want! Give me the 1% inflation and 4.9% interest rate for my new car, please!”

And so it came to pass that Country A and Country B had the same currency, the same rules, and the same great expectations. There were, here and there, some isolated warning voices (one was yours truly's) who said to family and friends “this can only work if people, nay: entire countries change; and the odds of this happening are extremely small”. But they weren't heeded. “When people get to experience the advantages of a strong currency, they will change!” most people said.

However, Country B continued to have double the civil servants it needed; to pay stupid “pensions” to people who had never worked, and to hire 13 people for every ten needed, who then kept looking at YouTube in the office; to make a point of hiring the mistress of the boss, the stupid son of the manager, and the daughter of the local politician who could do them favours by the next public contract. You know the drill.

Result? The deficit was still there. The boost to the economy given by the low interest rates (money for a new car in instalments, a new gadget, and so on) were soon gone. Why? Because the economy was still inefficient. Soon, Country A's cars were gaining ground in all markets, again, whilst Country B had not even brought the deficit under control.

Could Country B now devalue its currency? No, it couldn't! Could it print money to cover the deficit? No, it couldn't! Could it, at least, borrow it? Yes, until there are creditors ready to lend it!

Country B should by now begin to realise that strong currencies really do not fall from heaven. They must be deserved every day with fiscal responsibility, work ethic, and efficient capitalism. If this is not the case, the strong currency will not help Country B in the least. In actual fact, it will strangle it. It must be so, because a strong currency will expose all the weaknesses of a weak economic system even as it deprives it of the traditional way to get away with it: currency creation, vulgo: “the money press”.

Mind, though, that for the unavoidable crush will not be the currency that is to blame: the currency merely does what it is designed to do, and what Country B wanted: low inflation, low interest rates, strong and stable foreign exchange. Nor can those be “blamed” (beside of stupidity, or naïveté) who in good faith – or because they're stupid – have lent the money to an inefficient Country to help it to become efficient. Yes, there can be a political interest to help the “less fortunate” brother. But in the end, the blame is entirely on those who wanted the strong currency, and thought they could get away with not paying the price that came attached to it.

——

Greece has made everything wrong. But this is not Germany's fault. It is Greece's fault. How rotten the mentality over there is was made entirely obvious not only by the continued lies and frauds, but – more tragically – but the astonishingly blind behaviour showed both with the last elections and with Sunday's strange “referendum”. The latter is, in itself, the best demonstration of Greek suicidal stupidity, in that it asked the Country if it thought the Germans should do as the Greek please, or not. After which, we were told by the Greek Prime Minister that this was a democratic decision, and we must listen to it.

Greek logic.

The Euro is a very strong currency. The Germans, the Dutch, the Austrians want it so, and they are perfectly right to want it so. The low inflation and low interest were a gift they made to us (us Italians, French, Spaniards, Portuguese… Greek!), and we woke up one fine day in a low-inflation, low-interest environment we had done not much, or not for a long time, to deserve. But a strong currency costs a lot to maintain: it is like an elite gym, where you can survive only if you are fully determined to be as fit as the elite gymnasts who practice there.

Some countries did it brilliantly (say: the Dutch, obviously). Some others managed to stay afloat and made great strides of improvements and modernisation; but the now very harsh, direct competition with the very best without the possibility to devalue the currency was paid by them at the expense of economic growth, so that whilst Germany, on the whole, prospered they, on the whole, stagnated (Italy is an extremely obvious point in case). Others still, who thought they could feast and have the bill paid by the rich neighbour, are drowning all right, and chief among them are the Greek.

What too many people don't get is that the Euro is a “swim or drown” currency. You either learn to swim with the best or you will go down all right. Strong currencies come to those who swim hard, not to those who sit at the board of the swimming pool complaining about how cold the water is whilst looking at the girls, and insult the swimming trainer who tells them they must seriously move their ass or leave already.

I have lived and worked in three European Countries. I have seen so many examples of efficiency and inefficiency, seriousness and populism, best candidate hired or the mistress of the manager, that I could write a book. And I have dealt with Greek companies, too. And could not believe my eyes.

You drink all the kool-aid you want.

I will keep my brains switched on.

M

 

 

Addendum, Part I: The Big Fat Greek Swindle

You either know things, or you don't. You either accept reality, or you live in a fantasy world in which reality is so cruel to you, and there must be a conspiracy of bad Jews, avid bankers and cruel Freemasons against your good, innocent self.

Undoubtedly, the Greek belong to the latter group. They just do not accept reality. They actually never did, seen how they could get away with it for so long. This time the game is (more or less) up.

If you know things, you know as a fact (something, therefore, with which I will not waste my time) that the Greek governments – of every colour – have swindled both their entrance in the euro – faking a compliance with Maastricht criteria that was never there in the first place – and their continued adherence to the same criteria for a long, long time.

The swindle continued – had to continue – in the following years, because if a swindle brought you certain advantages you won't suddenly become honest because you got away with the swindle; and if the new situation forces you to behave differently you will prefer to do what you already did: cheat. The Greek Governments – of all colours – kept beautifying for years the statistical data in order to reduce the scale of their deficit in absolute numbers, and to inflate the growth of the economy in order to let the deficit/GDP ratio appear compliant, more or less, with the EU criteria.

As for every account swindler, reality sooner or later had to catch up with them. For Greece, the moment of truth came in 2009, when Brussels officials decided to get to Athens en masse and conduct a thorough review of how much Ouzo went in the official accounts of the Greek government.

The Greek Government, always faithful to themselves, prevented the scandal as much as possible with The Big Fat Greek Surprise: the announcement that (cough) there was, in fact, some (cough) slight mistake and the Greek deficit did not amount to 3.7% of the GDP, but rather to (cough) 12.5%. Read these figures again. And again. And again. This 2009 announcement was nothing less than the open admission (as much as a Greek would make it) of the biggest public accounts fraud ever perpetrated by a sovereign state against other states, and allowing it to swindle their entry into an exclusive club giving right to, inter alia, extremely low interest rates due to the fiscal responsibity of… other people. A swindle that went on for many years, certainly a decade.

What the Greek government did for many, many years is worthy of a tin-pot African Country, and yours truly does not doubt in the least it would have gone on forever if they had been allowed to do so. Never was one so-called civilised country so determined to have their cake, eat it, cheating as they do so, and blame everyone else for their lack of basic integrity. And no, don't blame government officials. An entire country, collectively considered, is obviously playing this game.

Don't insult your intelligence pretending that there was only one Greek voter who, in 2009, did not know what had happened and why. Do you think they chose to finally enter the path of financial virtue and fiscal seriousness that was required of them, now, very urgently? Do you think they would accept the fact that if you want to be in the Strong Currency Club you have to follow the Hard Membership Rules? If you do, you don't know the Greek (I do, out of both business and private dealings. They just take your breath away. No, I don't care if you're offended, either. I choose reality).

The game of blaming others for their frauds, and of accusing others of being “cruel” because they urged them to stick to the rules, now began in earnest. As the word “Grexit” became to be pronounced worldwide, starting from 2010 the Greek began the usual game of stalling, lying, crying, deceiving, and threatening bankruptcy. The game of every debtor who can't cope with the simple, brutal fact that he is spending too much and he must reduce spending. But then again, this kind of debtor can never reduce spending. It is indispensable to spend too much. It's your fault, not his, because you insist in being repaid.

“I can't do what you ask of me. I am poor, you see, and so little. But you, Germany, and your friends, you are so big, and so rich. I will be able to live out of you and your friends indefinitely, surely? Yes, I will do what I am absolutely forced to do. But it will be too little and too late, because I still expect you, rich Germany and friends, to pay for my swindles, my corruption, my populism, my lack of responsibility, and my fight against reality”.

Unfortunately, the like of Merkel made everything they could to help the swindlers. In part, they certainly thought they could bend them to their will. In part, they feared the loss of credibility for themselves if the EU project (remember: the Euro is part of a far bigger machine) had been exposed as a dream, or rather a nightmare.

But mind, it would be the height of folly to blame them for the sin of the Greeks, now bearing – again – more threats and more vague, useless promises. Realistically, immediate kick out was not in the cards. An epochal change like that would have never been countenanced by the mainstream voters; least of all, by those who say, now, that the Greek should not have been helped then. I am, actually, glad we only needed five years to come to this point, and I give the merit not to the German representatives, but to the German people: the honest workers and taxpayers who have had enough of this scandal, and won't (hopefully) allow this sort of collective scrounging anymore.

Again: it was utterly unrealistic to expect Greece to be kicked out in 2010. The same hypocrites who now say that Greece should not have been helped for so long are the same ones who said in 2010 that Greece could not be so cruelly abandoned. You know the drill: it's either too soon to act, or too late. With people who live above their means it is always so: you are cruel if you don't help them, and when you help them it is your fault that you did. That they need to repay their debt, will never be admitted.

Unfortunately for the Greek, their basic strategy (I will get away with an awful lot, because the other Euro Governments will not risk the end of the project and the financial earthquake for little me; so they will just pay for the wayward little brother as he reforms himself as little as strictly necessary) did not pay out. Years of extremely painful financial discipline (Italy brought down its deficit from around 10% to around 3% of GDP in just a few years, and has been on the whole fiscally virtuous since; at the cost of great sacrifice) have now trained even traditionally undisciplined Countries to think that if they (the Italians) can other (the Greek) can, too; and if they cannot or want not, they should say it and be done with it; and let's see if the world outside of the club is kinder to them.

Greece could have been helped if the Greek voters had been willing to help themselves; but this would have involved a measure of re-adjusting themselves to reality that they were never ready to accept because hey, I am so little, and you are so German.

This mentality was demonstrated (motus in fine velocior) in 2015, when things finally came to a head. First, this bunch of deluded children sent to power a bunch of deluded leftists, thinking in best Greek tradition that if you deny reality, reality will certainly change to accommodate you. Then, they even voted for the “no” to the EU plan, showing a huge finger to those who have been footing their bills for fifteen years and are doing – and have been doing – far more than they should to help them. Only scarcely 40% of the Greek seem to look at reality straight in the eyes and recognise that the time of swindling, crying, accusing and even insulting has gone. For the others, it is denial to the end. Germany is so rich, it's unjust they should not profit of this.

Will the Greek get away with it again? Unfortunately, I fear that they will get out of this (their) mess infinitely more than they deserve. The fact is, if Greece is kicked out of the Euro and (very possibly) of the EU, the nightmare of One Europe will be gone for good. To the extent that the electorate in countries like Germany allow their representatives to get away with it, some kind of make believe that the Greek are truly doing their homework and have learnt their lesson might well suffice; after, of course, the drama necessary for the Greek Government to force his own voting children to accept the strictly unavoidable, and for the Kanzlerin & Co to show they really, really mean it, when they actually don't.

It'll never work, of course. The Euro will continue to brutally grind inefficient, corrupt economies poisoned with populism like the Greek one. Expect more pain down the way. Expect more pain even if the Greek should have their gift of – absurdly – 30% of a debt contracted by lying and swindling simply forgotten. They are in this mess because they are inefficient, populist, corrupted and at war with reality. The more gifts you make them, the more they will feel justified in keep behaving as they did.

Long term, Greece only has two alternatives: shut up and do what they are told, and try to become a better Country; of go back to the Drachma and sink in an ocean of South American inflation, overspending, Bergoglian rhetoric, and more corruption.

Forty percent of them seem to have got the message. The vast majority continue to dream.

Good luck, Greece.

And (hopefully) good riddance.

M

 

 

 

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